The 7th Circuit Court of Appeals recently handed down a decision on a challenge to the FERC's authority to distribute the costs of high-capacity transmission to support wind investments (“multi-value projects”) across the Midwest Independent System Operator (MISO) region. One sentence in the decision has attracted a great deal of interest – the statement that Michigan’s in-state requirement for their RPS is a violation of the Commerce Clause of the U.S. Constitution. While some see this language as trouble for the RPS in Michigan and possibly elsewhere, in my view, the decision is a victory for FERC and for advanced energy.

I am a geologist, not a lawyer, but I would point out two things: 1) Michigan’s RPS is not a subject of the decision, and 2) while certain in-state preferences, such as Colorado’s multiplier for in-state generation (which was eliminated this year), may violate the Commerce Clause, it’s not clear that Michigan’s is such a violation.

Michigan’s RPS states that renewable energy systems whose RECs are used to satisfy the Renewable Energy Standard may be located anywhere in Michigan or outside of Michigan in the “retail electric customer service territory of any provider that is not an alternative electric supplier,” such territories including areas of Indiana and Wisconsin. The Michigan Public Service Commission has the authority to expand a service territory if lack of transmission lines limits the ability to obtain sufficient renewable energy resources.

While I think it could be argued that the “anything inside Michigan is ok” part of the statute might be seen as an in-state preference and possibly in conflict with the Commerce Clause, I think it is vague enough that it would need to be litigated in itself.

In this decision, the court doesn't really look at the RPS provision; the decision simply references the argument that the petitioners make (which is false, because resources don't need to be within the state – only within specified service territories, which is allowable under interstate commerce) and says that this argument would be a violation of the Commerce Clause. On that basis, the court rejects the argument and sides with the FERC on cost allocation for transmission – but does not take any action on the Michigan law itself.

(AEE’s state partner, the Michigan Energy Innovation Business Council, responded to the decision by noting that the Michigan RPS law is still intact, and that even if a future case were to invalidate the geographic preference, only that section of the law would be struck down – not the RPS as a whole. See here.)

In the decision, six issues are presented; the court supported FERC on five of the six, with one minor ruling against. The decision itself is fascinating. Written by Judge Richard Posner, a prolific author as well as jurist and University of Chicago law professor, the ruling even references an 1810 German Novella (see page 20). Who knew?

Below I have attempted to present the six issues and excerpts from the decision the court presented to reject the petitioners’ arguments. I have presented the six issues as five, reflecting the court’s decision to combine the first two:

1. The proportionality of benefits to costs; and the procedural adequacy of the Commission’s treatment of proportionality; [considered together]

a) “Bear in mind that every multi-value project is to be large, is to consist of high-voltage transmission (enabling power to be transmitted efficiently across pricing zones), and is to help utilities satisfy renewable energy requirements, improve reliability (which benefits the entire regional grid by reducing the likelihood of brownouts or outages, which could occur anywhere on it).”

b) “Illinois can’t counter FERC without presenting evidence of imbalance of costs and benefits, which it hasn’t done.”

c) “Michigan argues that a Michigan statute, Mich. Comp. L. 460.1029(1), forbids Michigan utilities to count renewable energy generated outside the state toward satisfying the requirement in the state’s “Clean, Renewable, and Efficient Energy Act” of 2008 that they obtain at least 10 percent of their electrical power needs from renewable sources by 2015. Michigan further argues that it won’t benefit from any multi-value projects constructed in other states because its utilities draw very little power from the rest of the MISO grid, as a consequence of the limited capacity to transmit electricity from Indiana to Michigan. It argues that for these reasons it should be required to contribute only to the costs of multi-value projects built in Michigan.”

d) “The second argument founders on the fact that the construction of high-voltage lines from Indiana to Michigan is one of the multi-value projects and will enable more electricity to be transmitted to Michigan at lower cost. Michigan’s first argument—that its law forbids it to credit wind power from out of state against the state’s required use of renewable energy by its utilities—trips over an insurmountable constitutional objection. Michigan cannot, without violating the commerce clause of Article I of the Constitution, discriminate against out-of-state renewable energy” [emphasis added]

2. The propriety of apportioning the cost of the multi-value projects among utilities on the basis of their total power consumption while allocating no MVP costs to the plants that generate the power;

a) “Petitioners complain about MISO’s decision to allocate all MVP costs to the utilities that buy electricity from its grid and none to the power plants that generate that electricity. Because the power plants are required to pay for connecting to the grid and the multi-value projects will shorten the interconnection distance and thus reduce the cost to the power plants of connecting, the petitioners argue that the power plants should pay part of the MVP tariff. But the utilities benefit from cheaper power generated by efficiently sited wind farms whose development the multi-value projects will stimulate.”

3.Whether MISO should be permitted to add the MVP fee to electricity transmitted to utilities that belong to the PJM Regional Transmission Organization rather than to MISO;

a) “MISO and PJM may eventually negotiate an allocation agreement, as they did in the pre-MVP era, but the rest of the grid is left to pay for PJM’s share unless and until they do so. So far as we can tell, the Commission is being arbitrary in continuing to prohibit MISO from charging anything for exports of energy to PJM enabled by the multi-value projects while permitting it to charge for exports of energy to all the other RTOs. The Commission must determine in light of current conditions what if any limitation on export pricing to PJM by MISO is justified. This part of the Commission’s decision must therefore be vacated.” [NOTE: This is the sole finding against FERC’s decision]

4.Whether MISO should be permitted to assess some of the multi-value projects’ costs on departing members of MISO;

a) “When a firm withdraws from an association owing money to it, its withdrawal does not terminate its liability; an example is an employer who withdraws from a multiemployer ERISA plan. The same may be true of withdrawal from a Regional Transmission Organization. If MISO began to incur costs relating to the MVPs (including the pilot projects) before the departing members announced their departure, those utilities may be liable for some of those costs.”

5.Whether the Commission’s approval of the MVP tariff—which if implemented will influence decisions by state utility commissions regarding the siting of transmission lines—violates the Tenth Amendment to the Constitution by invading state prerogatives

a) “The last issue is frivolous, so we dispatch it first. Some of the petitioners complain that FERC’s approval of the MVP tariff coerces each state to approve all MVPs proposed within its territory.”

b) “They argue that since the costs of each project are distributed among all MISO utilities while any local benefits will be retained in the state in which the project is located, a state will deprive itself of the local benefits of a project subsidized by other utilities if it refuses to approve an MVP project.”

c) To obtain the benefits of the MVP program each state’s MISO members may have to shoulder costs of some specific projects that they’d prefer not to support. But that’s a far cry from the federal government’s conscripting a state government into federal service.”